Bandit Corporation will be releasing its 2017 calendar-year financial statements
ID: 2459585 • Letter: B
Question
Bandit Corporation will be releasing its 2017 calendar-year financial statements in a couple of weeks. Bandit’s accounting records include the following deferred tax accounts:
Deferred tax assets:
warranties $25,000
accrued interest expense 12,000
Deferred tax liabilities:
depreciation of property, plant and equipment 27,400
installment sales 34,550
Your accounting supervisor just learned that FASB recently issued a new accounting standard regarding deferred tax reporting but he is unaware of the details. He has asked you to investigate how to report these accounts on the balance sheet.
Required:
1) How should Bandit report these tax accounts on its balance sheet if Bandit is a publicly-held company? (Note: Be sure to illustrate how the above deferred tax accounts would be reported under every available option)
2) How should Bandit report these tax accounts on its balance sheet assuming Bandit is a privately-held company? (Note: Be sure to illustrate how the above deferred tax accounts would be reported under every available option)
Explanation / Answer
1) if Bandit is publicly -held company
In the balance sheet of Bandity
Liability Side
Non current liability =$24950
Total Non current deffered tax liability = Depreciation on property , plant and equipment + installement sale
= $ 27400+$34550
= $ 61950
Total Non current deffered tax asset = accured interest exp + warranties
= $ 25000+$ 12000
= $37000
Net deffered tax = $ 24950
2) If bandit is privately held company
Liability side
Non current liability
= Deferred tax liability = $ 27400
Deffred tax Asset = $12000
= $ 15400
Current liability
Deffred tax liability = $ 34550
Deffred tax asset = $25000
Net =$9550
Current GAAP requires an entity to separate deferred income tax liabilities and assets into current and noncurrent amounts in a classified statement of financial position. Stakeholders informed the Board that the requirement results in little or no benefit to users of financial statements because the classification does not generally align with the time period in which the recognized deferred tax amounts are expected to be recovered or settled. In addition, there are costs incurred by an entity to separate deferred income tax liabilities and assets into a current and noncurrent amount. To simplify the presentation of deferred income taxes, the amendments in this Update require that deferred tax liabilities and assets be classified as noncurrent in a classified statement of financial position. The amendments in this Update apply to all entities that present a classified statement of financial position. The current requirement that deferred tax liabilities and assets of a tax-paying component of an entity be offset and presented as a single amount is not affected
Applicability
For public business entities, for financial statements issued for annual periods beginning after December 15, 2016, and interim periods within those annual periods.
2. For entities other than public business entities, for financial statements issued for annual periods beginning after December 15, 2017, and interim periods within annual periods beginning after December 15, 2018.
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